Rule-of-78s Loan Calculator
An Introduction to the Rule-of-78s Calculator
The Accurate Rule-of-78s Loan Calculator creates a printable schedule for a loan amortized using the Rule-of-78s interest allocation method.
The Rule-of-78s, also called the “Sum-of-the-Digits” method, is a way lenders use to calculate a loan’s interest charges.
Borrowers pay more interest during the early months of the loan term. They pay less interest during the later months. This structure can disadvantage borrowers who plan to repay the loan early, because they pay a larger share of the total interest earlier than they would under a traditional loan.
The Rule-of-78s method is not widely used today. Many countries have banned its use because it can be unfair to borrowers. Most lenders now use the simple interest method or the daily interest method to calculate interest on loans.
The Calculator-Calculate a Loan Schedule Using Rule-of-78s
Information
Additional Instructions for the Rule-of-78s Calculator
- Loan Amount: Enter the total principal amount of the loan. This is the amount you must repay, along with all interest charges, over the loan term.
- Number of Payments: Enter the total number of payments required to repay the loan in full. Express this as the total number of periods based on the payment frequency.
- Annual Interest Rate: Enter the annual interest rate charged on the loan.
- Payment Amount: Enter the amount you must pay on each payment due date. You can calculate this based on the loan amount, the number of payments, and the interest rate.
Above are the “primary user inputs”. You may set any one of them to “0”, and the calculator will calculate that value.
- Payment Frequency: Enter how often payments will be due. This can be monthly, quarterly, semiannually, annually, etc., depending on the loan terms.
- Compounding: Enter how often interest is compounded. If you are not sure what the compounding frequency is, set it equal to the payment frequency. Compounding is the process of adding earned interest to the principal balance of the loan so that future interest charges are calculated on the higher balance.
- Payment Method: Loans are paid in arrears. The first payment is due one payment frequency after the loan originates. Leases are paid in advance. The first lease payment is made on the day the lease is signed.
Above are the “secondary user inputs”. You must set all of them. However, if you are not sure, you may leave them at their default values.
If you use one of the calculators above, set the “Amortization Method” to “Rule-of-78s”.
Rule-of-78s Calculator Help
Rule-of-78s loans are less common today. However, if you need to create an amortization schedule for one, use this calculator. You can also review the article in our “Reading Room” that explains how a Rule-of-78s loan works.
This calculator can solve for any one of four unknowns: “Amount of Loan”, “Number of Payments” (term), “Annual Interest Rate”, or the “Periodic Payment”.
Enter a ‘0’ (zero) for one unknown value.
The term of the loan depends on the “Number of Payments” and the “Payment Frequency”. If the loan requires monthly payments and the term is four years, enter 48 for the “Number of Payments”. If payments are quarterly and the term is ten years, enter 40 for the “Number of Payments”.
For most loans, set the “Payment Method” to “Arrears”. This means the funds are lent on one day, and the first payment is due one period after the borrower receives the funds.
If the first payment is due on the day the funds are disbursed, set the “Payment Method” to “Advance”. This structure is typical for leases.
Scott says:
Thank you So Much for this Calculator!!!
I have taken a Rule of 78s loan and afterwards I used this calculator to print and show the lender what they were doing to me with the interest. I was able to take advantage of the 7 Day return window with OneMain Financial and saved almost $10,000 in Interest by returning their money and NOT Taking their precomputed interest loan.
This Calculator is the best I’ve found online. And the print function of the Payment Schedule and Loan Summary is amazing.
Thank you so much for this. Really appreciate it! 🙂
Scott
Karl says:
That’s a great story. Thank you for letting me know!
Bry says:
A useful feature to consider for your calculator would be an optional field to specify an Additional monthly payment. I’m comparing two different insurance financing proposals, one is a monthly payment and the other is quarterly, I was trying to find out if we pay an extra 200% or 300% each month how much we’d be saving on the finance charge. Thanks for the tool though, one of the best I’ve found online.
Karl says:
There are a number of calculators on this site that will allow users to enter extra or additional monthly (or other frequencies) payments and see the interest saved.
Here are two:
loan calculator
extra payment calculator